Jimnah Mbaru’s Analysis of The Kenyan Economy
I got this link from reading bankelele’s blog where he had a link to an article Jimnah Mbaru had written on what Kenya needs to do inorder to avoid a severe recession, which Mbaru believes is coming.
I had to read the article a couple of times because some of the sections were difficult to follow. So, I’d encourage everyone to click on the link above, read it and then provide your comments about it here.
The article begins with an explanation of the causes of the current (or coming recession) — which places a lot of blame on the post election violence. Some of the causes mentioned are: a drop in tourism, a drop in remittances, falling agricultural outputs and high oil prices.
Mbaru then goes on to highlight some of his prescriptions for this blunted economy and it is here that I want to expound on the points of the article that I found confusing. I’ll just pick out a few points and you should read the article and pick out whatever points you want.
First Suggestion, which confused me. He said the following:
An area of fiscal policy that should also be considered is to lend Rwanda, Uganda Burundi and Southern Sudan about $400 million to buy Kenyan manufactured goods or services whose origin is Kenya. Such exports would stimulate the Kenyan economy. The government can borrow such funds from Central Banks by issuing long dated Dollar denominated bonds.
Huh? Borrow money from whose central banks? European central banks? or from the Kenyan central bank? and since the central bank is really part of the government, is he saying the government should borrow money from itself, then lend it out to other poor African countries and then force them to use that money to buy only Kenyan goods? I don’t get this. And if it’s European central banks, would they really be in a position to loan money out in the middle of a global financial crisis?
Second suggestion:
A fourth way of helping Kenya to escape a major recession is for the City Council of Nairobi to demand that all houses in the city get connected to the sewer lines. The owners of houses would pay for the digging of tunnels and connection charges. This type of public work would also help in stimulating the economy. The funding of such a project could be raised from the local banks through issuance of appropriate municipal bonds.
So, people are building houses and the city council is obviously not enforcing the building codes or other public works codes, but he thinks that if the council gets money from a bond, they’ll finally implement what they should have been implementing in the first place? Wouldn’t building roads be a better public works stimulant for the economy? Don’t get me wrong, I think sewage is important because it could be a public health hazard, but there are infrastructural development needs that work more effectively than sewer pipes. I think the council just needs to start implementing the rules that are already on the books and you don’t need to float a bond to do that.
Third Suggestion:
Finally, we can try another radical approach. Let the Kenya Government sell its major buildings or offices and lease them back. In this process, they will raise funds to finance the budget deficit, they will continue to use the buildings and can eventually buy them back when they have budget surplus. Those who buy such buildings can repackage them and issue property-backed IPO’s. Property and pension funds could also buy these properties and eventually could be offloaded through the Stock Exchange. Again this is like eating your cake and having it at the same time. Why not try it?
This is dangerous because we all know what would happen. The ministers would sell the buildings off at low prices. Then, the “broker” would lease it back to the government at triple the cost of what he bought it for. So, I buy the building for 100 million, but lease it back to you for 200 million– splitting some of the profits of course, with the “minister”.
Or, as he suggests, going the IPO route and giving the public the chance to “own” buildings. Essentially, introducing real estate stocks. I don’t know what to think of this.
It was interesting to me that in all his prescriptions he did not mention the importance of the government investing in areas of the economy that may create new wealth in the future: e.g. outsourcing.
I mean, the answer is not just to keep doing endless IPO’s is it? At some point, the country needs to start producing “stuff”. i.e. things that they can export to the developed world besides coffee and flowers.
Your thoughts…
My thoughts at http://www.coldtusker.blogspot.com
CT:
If I could sum up Mbaru’s analysis in one sentence, it would be:
IPO, IPO, IPO……
However, this is not how you jumpstart an economy that is fundamentally flawed. If you look at history, the examples of how to develop an advanced economy are everywhere and they include:
- large investments in public education, with particular emphasis on math and science programs. You must have a literate population.
- massive investments in roads, electricity and telecommunications.
- some semblance of the rule of law so people will at least be able to sleep at night knowing that their investments will not be taken over by some dictator or by the government.
And getting back to a point I’ve harping on for some time, you have to start producing things that can be exported to the developed countries because that is where the money still is.
I don’t see how issuing bonds and having continuous ipo’s is going to resolve this problem of lack of productivity.
I don’t think the Kenya economy will enter into a recession. It may slow down this year yes because of reduced productivity, inflation etc but will bounce back next year and 2010 -12. About inflation, it already easing up as fuel and food prices fall. About infrastructure spending, I see roads being built everywhere and still more projects on the works…
What we need to do more is to open up more market, link comesa and sadc and make our industries more competitive so that they can compete at this huge market. Comesa itself has a market of about 400 M people. Since our products are basic commodities and our shilling has weakened against the dollar, they could make our products more competitive in the region. I think its all about turning this global financial challenge into an opportunity.
I dont think tourism is slowing down. It may not be like 2007 but it has bounced back. Both foreigners and locals are touring the country. Hotels are overbooked especially at this season. I know I sound very optimistic, but I know am being also realistic.
Tourism has slowed down. Ask KQ…
KQ relies on advance bookings & they seen a drop in leisure travel. Hotels are ‘over-booked’ for the Xmas season but sustained tourism is needed all year round!
For those who didnt read Jimnah Mbaru’s “enlightening” article, I shall summarize it here as I understood it:
Q. Economy is in the dooldrums, what to do?
A. Issue a bond.
Q. Looming recession, what to do?
A. Issue a bond so we can build more toilets.
Q. GoK is broke, what to do?
A. hmmmm… an IPO?
Q. Is Kenya’s economy in the dooldrums?
A. No one knows. We can’t measure the economy.
Q. How do you know there’s a looming recession?
A. We had negative growth in the last 2 quarters.
Q. If you cant measure the economy, and you dont know if its in a recession, then why on earth are you calling for radical action?
Look man, things are elephant. I..err the Goverment wants some commissions… oops budget cash man. NSSF scandal kitu gani? Have you seen those guys? They have money man! Look at GoK, all those billions in CBQ man and they cant take it! We need IPOs and Bonds and shares man. Forget long term. Think short term. Help my compa… help the economy! 
…
A.
Maishainki:
That’s a very good summary of the article.
Mbaru is looking out for himself. He needs more IPO’s and more bond floats so that his firm, Dyer & Blair, can continue to make it’s commissions and charge those enormous fee’s it’s been charging the public.
@coldtusker
Tourism has hit hard because of PEV and there has never been a downturn in tourism like this experienced before but its picking up, and there is alot of business. Maybe not like in 2007 before the PEV but its coming back, just as any tour agent. KQ is speaking in terms of “may”. Its projecting reduced traffic but I guess we have to wait to see if that happens.
@KE
Yes Mbaru is speaking for himself. He has his own interest in this.
If by tourism you guys mean tourism from the international community; blame the global financial crisis.
Maishniki: LOL
ur right… it’s pure self-interest! And short-term… I have argued in my blog that the solutions we should look for are long-term…
http://www.coldtusker.blogspot.com
Tourism – KQ has a better idea than most about ‘future’ tourism since they carry a large % of ‘leisure’ travellers to Kenya from Europe and N.America…
Did anyone see the article in bd africa?
see here: http://www.bdafrica.com/index......temid=5812
The current NSE chairman is telling people that this is a good time to buy because stocks are so cheap
These guys are just trying to make their commissions. When will kenyans wake-up and realize that? These brokers don’t care whether you lose all your cash. They just want you to keep buying stocks so that they can keep charging you those astronomical commissions.
These guys are not “warren buffett” types.